Super funds use rising rates to boost returns, lower risk
The chiefs of Australia’s largest superannuation funds say rising interest rates are allowing them to lock in higher returns while taking less risk than they did during the era of cheap money.
Hostplus chief investment officer Sam Sicilia, who manages$100 billion, said he was allocating capital to private credit because the returns were compelling and likely to exist for years to come, as banks pulled back on lending.
JP Morgan’s Jason Steed, Sam Sicilia from Hostplus and Ian Patrick from Australian Retirement Trust. Aaron Francis
“You’re still getting 8 to 11 per cent return out of private credit with the volatility that’s nowhere near the equity market,” Mr Sicilia told The Australian Financial Review Super & Wealth Summit.
“That’s a better risk return. So we think that allocation is going to be increasing and permanent.”
Super funds typically target returns of CPI plus 3 to 4 per cent over the medium to long term (which varies from eight to 10 years across funds) in their balanced MySuper options.
Mr Sicilia said movements in bond rates had no bearing on how the fund allocated its capital, particularly if good assets became available.
“If an airport becomes available for sale, you don’t have the luxury of saying I’ll wait until next year to buy it,” he said.
“You either buy it now or it isn’t coming back to the market in your lifetime. It doesn’t really matter what the rates are today. You’re going to hold that asset for 50 years.”
Earlier UniSuper chief executive officer Peter Chun said private markets were throwing up some interesting opportunities as certain investors were seeking to divest.
“We’ve done some [unlisted asset] transactions where we’ve been able to get better fees, better valuations, better
Read more on afr.com
